Small Business Credit Reality: Your Personal Credit Matters

Even though it's nice to think that your small business credit is completely separate from your personal credit, the reality is that your personal credit does matter.

One of the essential pieces of advice given to just about anyone who starts a home business — or any type of business — is that you need to try to keep business expenses and personal expenses separate.

There are good reasons for this, ranging from tax reasons to liability reasons. It's easier to prepare your taxes, and to prove the situation, when you keep your business and personal items separate from each other. Additionally, as the Rich Dad bankruptcy taught us so many years ago, you can also reduce a certain level of personal liability for the business if you keep these realms separate.

Unfortunately, it's not always so easy when it comes to getting small business credit. Your personal credit might be considered when you apply for business credit, whether you apply for a small business loan, or a business credit card.

Personal Credit = Small Business Credit

No matter what kind of small business credit card you are looking for, and especially if you are looking for any sort of credit for your fledgling home business, your personal credit is going to matter. Here is what Odysseas Papadimitriou, back when he was the CEO of WalletHub, once told me about personal and business credit:

While most small business owners consider their business and personal finances to be entirely separate, that's not how banks see things. Every major issuer uses personal credit data to determine small business credit card eligibility and holds its customers personally liable for business card debt.

Papadimitriou also pointed out that many card issuers report the activity on your business credit card not only to business credit bureaus, but also to personal credit agencies. In fact, my own small business credit card sends reports to my personal credit file. So the things I do with my business also impact what happens with my personal credit score.

Should you get a personal credit card instead of a business credit card?

If you're just starting out with your small business, Papadimitriou suggested, at the time, that you get a personal credit card for business purposes because. Why? Well, business credit cards don't fall under the protections offered to consumers under the Credit CARD Act of 2009.

If you do decide to get a personal credit card to use for business purposes, make sure that you are clear with the way you use that card. Designate it as a business credit card in your own mind and in your records, so that you still have that separation between your personal finances and your business finances. Just because credit issuers use your personal credit when deciding to extend small business credit doesn't mean that you should merge those accounts in your records. Maintain separation for record-keeping and tax purposes — and even for your own protection down the road.

On the other hand, it can still make sense to get a small business credit card. Not every business card issuer reports to personal bureaus, so it can make sense to get a card that doesn't, if you want to build that separation.

If you want a good overview of which small business credit cards report activity to personal credit agencies — and which don't — Nav has a great list you can look at. Some of these small business cards have great rewards structures. In fact, I wish I'd taken a look at this list and chosen a different card before I moved forward.

Build small business credit

Regardless of whether you decide to get a small business credit card or not, you probably still want to build your own business credit.

Even though your personal credit history and your personal assets are often taken into consideration with loans, it's still not a bad idea to build credit specifically for your business. If you start small, you will be more likely to get larger loans down the road when you can show that your business is a separate entity — and that it is capable of taking care of itself.


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